IRS Levy, Tax Liens, and Wage Garnishments....Are They Overdoing It?

This time we want to discuss Taxpayer Advocate Report to Congress regarding IRS Collection Practices. The Watchdog expressed concern about the IRS collection procedures for IRS debt when it inflicts “unnecessary or disproportionate harm” on taxpayers. Not only does the practice hurt the taxpayer but it affects negatively the money that the IRS collects for back taxes.  IRS believes that the more aggressive they enforce collection actions against taxpayers such as tax liens and levies, the more money they collect for back taxes or tax debt.

The reality however points to the opposite results. The Taxpayer Advocate believes that the “data don’t bear that out.” The increased tax collection mobilization brought opposite results. The report to congress states that since 1999 the IRS increased tax lien filings almost five times (475%) and increased tax levies whether a bank levy or wage garnishment by 600% (six times.)  With this massive attack, one would expect that they IRS is doing now a great collection job. The numbers point that collection dollars (adjusted for inflation) went down by 7% over that period.

So we previously said that tax liens, bank levies, wage garnishments or other levies did not help the IRS but actually hurt them as the Advocate suggested. It also inflicts considerable damage on the taxpayers who have tax debts or back taxes.  They say that when the lien is filed you immediately lose 100 points on your credit score. If you were begging to recover and you built your credit score to 700 now they put you back at 600 and if you are at 600 and on your way to have access to the financial system and possibly the American dream, they put you back at 500.

Employers, credit card companies, renters, mortgage companies and even insurance companies check your credit. They practically shut you off from any decent opportunities. The questions is, "For what?"  What is the IRS gaining by this? In many instances, they are gaining nothing. It is sadly funny when I hold a conference with an officer of the IRS to negotiate an Installment Agreement, and after we successfully accomplish the agreement, the officer gives me the recital that of course, “Now that we have put them on Installment Agreement, we will file a lien against them.” 

When this first happened I was shocked and I reasoned, “Before the agreement my client had no tax lien, now we do the agreement and we get hit by a tax lien?”  I felt something is wrong. But soon I got trained by the system and when I do an installment agreement, I respond with all diginity and pride in my knowledge, “Yes sir, but of course, sir.”  Thus we have learned to expect anamolies. 

If we as tax practioners fail to voice our opinion, at least Congress, now based on people's complaints, is watching the problem. The problem is that The Advocate reported that although the IRS has been advised of the consequences of their actions, it is reported that they are underutilizing offer in compromise.  As the Taxpayer Advocate puts it, the acceptance of Offer in Compromise is at an all time low. The IRS has filed one million tax liens against taxpayers. To put it in perspective, there are countries in this world whose population is one million people. So in this case such country would be one under siege.  Remarkable? Perhaps next time we can propose some solutions along with Taxpayer Advocate's proposed ones.